Is compression causing depression?

A major report from investment bank Exane/BNPP and which looks at Europe’s two satellite giants, SES and Eutelsat, says that both operators are suffering because of weak video demand during the current quarter-year. Moreover, the report says it remains “concerned” by the lack of more rapid take-up of UHD channels.

The bank tracks demand for 20 satellites across the SES and Eutelsat fleets, and says its data suggests “that the number of active transponders and Mb/s used to broadcast TV channels in Europe and Africa has declined in Q4 17. Capacity consumption is down 2.3 per cent for SES and has turned negative for Eutelsat for the first time this year, at -1.2 per cent.”

“Our scanning has also picked up the first TV channels broadcast in HEVC HD and HEVC SD in Europe. While these channels may absorb more capacity during a short simulcast period, the 50 per cent bandwidth efficiency gains from more advanced compression standards (HEVC vs. MPEG4) lead us to cut our long-term video revenue forecasts by around 2 percent for Eutelsat and SES. On the back of that we cut our target price to €13 (from €14) for SES and to €27 (from €28) for Eutelsat,” says the bank

Several satellites are scheduled for lift-off in January and during the first quarter of 2018. The bank’s report says: “SES 12, SES 14 and SES 16 are key to the SES equity story and successful launches would de-risk 2018. Similarly, for Eutelsat, a successful launch of AI Yah-3 would be supportive to the share price following the weakness induced by the delay in this satellite launch. The recent announcement by the French government to subsidise satellite-based internet access in France should also help Eutelsat.”

“In our view,” adds the bank, “the key takeaway from our tracking is the realisation that broadcasters have started to launch HD and SD channels in the new and more efficient HEVC video compression standard. In September 2017, several broadcasters in Eastern Europe (Slovakia, Kazhkastan, Bulgaria) were the first broadcasters in Europe to complete the roll-out of HEVC set top boxes and have started broadcasting in this new video compression standard.”

“We find support to our view in the fairly slow pace of satellite UHD channel launches. Our tracking suggests that only a handful of new UHD channels have been launched in H2 17. While more launches are likely (witness SES announcement of 4K universe in Switzerland and its deal with QVC for a new UHD channel), we remain concerned by the lack of more rapid take-up of satellite UHD channels.”